IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION,

et al.1 Debtors. ) ) ) ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes
Hearing Date : December 14, 2006 at 2:00 p.m.

RESPONSE OF ERNST & YOUNG LLP TO OPPOSITION OF CREDITOR THIRD AVENUE VALUE FUND TO THE THIRD INTERIM FEE APPLICATION OF ERNST & YOUNG LLP Ernst & Young LLP (E&Y), serving as forensic accountant to the Audit Committee of above-captioned debtors (collectively, the Debtors), hereby submits this Response (the Response) to the Opposition of Creditor Third Avenue Value Fund (Third Avenue) to the Third Interim Fee Application of Ernst & Young LLP for Interim Allowance of Compensation for the Reimbursement of Expenses for Services Rendered During the Third Quarter of 2006 (the

The Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a/ Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 0555952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 05-55991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 0555980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 05-55964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.

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Fee Objection), filed by Third Avenue on or about November 8, 2006. In support of this Response, E&Y respectfully states as follows: General Background 1. On or about March 17, 2005, shortly before commencing these cases, Collins &

Aikman Corporation (C&A) announced that during the course of finalizing its financial statements for the 2004 fiscal year, it had identified certain accounting for supplier rebates that were inconsistent with relevant accounting standards and C&As policies and practices. C&A further announced that it had initiated an internal review of these matters and that it expected that certain restatements of its financial results would be required. 2. As part of that announcement, C&A also stated that it would not be able to file on

time its Annual Report on Form 10-K containing fiscal 2004 audited financial statements with the United States Securities and Exchange Commission. C&A stated that it required additional time to complete the review of the accounting issues described above, its financial reporting process and its controls over financial reporting. 3. On or about March 24, 2005, C&A publicly disclosed that the audit committee of

its board of directors (the Audit Committee) had determined to conduct an independent investigation into these accounting matters (the Rebate Investigation). 4. C&A further disclosed, on or about March 24, 2005, that the Audit Committee

had retained Davis Polk & Wardwell (DPW) as independent counsel to assist it in the Rebate Investigation. DPW, with the approval of the Audit Committee, retained E&Y pursuant to an agreement by and among C&A, DPW and E&Y (the Letter Agreement, dated March 30, 2005), to provide forensic accounting services in connection with the Rebate Investigation. While E&Y was retained directly by DPW, E&Ys fees and expenses relating to this representation were to be paid by C&A pursuant to the terms of the Letter Agreement. -2-

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On or about May 12, 2005, C&A announced, among other things, that the scope

of the Rebate Investigation would include C&As forecasts for the first quarter of 2005 and related matters, as well as other matters that have arisen in the course of the Rebate Investigation. 6. On May 17, 2005 (the Petition Date), the Debtors filed their voluntary petitions

for relief under chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses and managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in these cases. On the Petition Date, the Court entered an order jointly administering these cases pursuant to Bankruptcy Rule 1015(b). 7. On May 24, 2005, the United Sates Trustee appointed an official committee of

unsecured creditors pursuant to section 1102 of the Bankruptcy Code (the Committee). The members of the Committee at the time of its appointment included Third Avenue.2 8. On July 15, 2005, the Debtors filed their Motion of Debtors for Order Authorizing

(I) Assumption of Executory Contract with Ernst & Young LLP and (II) Payment of Related Cure Amount (the Assumption Motion). 9. On September 12, 2005, this Court entered its Order Granting Motion of Debtors

for Order Authorizing (I) Assumption of Executory Contract with Ernst & Young LLP and (II) Payment of Related Cure Amount (the Assumption Order). Among other things, the

Assumption Order (i) approved the Debtors assumption of the Letter Agreement pursuant to section 365(a) of the Bankruptcy Code, (ii) authorized and directed the Debtors payment of related cure amounts owing to E&Y, and (iii) required E&Y to file fee applications with this

As set forth in paragraph 12 of Third Avenues Fee Objection, Third Avenue has since resigned from the Committee.

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Court for postpetition fees and expenses incurred in connection with E&Ys services to DPW and the Debtors Audit Committee. Ernst & Young LLPs Pending Fee Application and the Fee Objection 10. On October 17, 2006, E&Y filed its Third Interim Fee Application of Ernst &

Young LLP for Compensation and Reimbursement of Expenses for Services Rendered as Forensic Accountants to the Debtors for the Period May 1, 2006 through August 31, 2006 (the Fee Application), seeking compensation and reimbursement of expenses totaling $826,434.00 incurred during the period from May 1, 2006 through and including August 31, 2006. 11. Third Avenue has filed numerous objections to fee applications filed by

professionals in these cases. Included among those objections was the Fee Objection referencing E&Ys Fee Application.3 Ernst & Young LLPs Involvement in these Cases was Limited to the Rebate Investigation 12. In assisting the Audit Committee and the Independent Directors with the Rebate

Investigation, DPW was assisted by E&Y in DPWs efforts to determine the facts surrounding, the extent of, and the cause of any accounting or other financial irregularities within the scope of the Rebate Investigation. 13. In assisting DPW with its representation of the Audit Committee and the

Independent Directors in connection with the Rebate Investigation, E&Y professionals have worked over 11,200 hours to date. With respect to accounting analysis, for example, E&Y has participated in over fifty interviews conducted by DPW of current and former C&A personnel in order, among other things, to gain an understanding of how multiple transactions were
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A cursory reading of the Fee Objection reveals that the issues raised therein by Third Avenue are directed not at E&Y specifically, but at all Professionals (as defined in the Fee Objection) in these cases.

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structured. Additionally, E&Y has reviewed financial documents relating to more than 205 supplier rebate transactions (including accounting journal entries made at the plant level and transaction agreements) to develop an understanding of these transactions. Further, E&Y has held in-depth discussions with senior financial management at C&A and gained a high level understanding of the closing and consolidation process that is applied to C&As financial books and records. 14. On the information technology side of the Rebate Investigation, E&Y has been

equally engaged. By way of example, E&Y has conducted the retrieval and archival of a significant amount of electronic information, including e-mail and other documents. To date, E&Y has captured over 15 million email or document files. E&Y has also identified numerous current and former C&A employees for electronic data retrieval, obtaining the data from the hard drives of nearly 150 current or former employees to date. 15. E&Y has worked diligently with DPW since E&Y was retained, and the Rebate

Investigation will be completed by December 31, 2006. Without E&Y, it would have been extremely difficult for the Debtors to respond to pending government regulatory inquiries. Even after December 31, 2006, government regulatory agencies will continue their separate investigation into the affairs of the Company. The Fee Objection Should be Denied Because it is Completely Without Merit in Law and Fact 16. Distilled to its most basic elements, the Fee Objection asserts that the Court

should view the success of professionals efforts in these cases with 20/20 hindsight, and should punish the professionals because there no longer is the possibility of a successful reorganization (leaving a sale of the Debtors as the only viable remaining option). Despite numerous failed reorganization efforts in various jurisdictions over the years, E&Y is aware of no court replacing -5-

the standards enumerated by Congress in section 330 of the Bankruptcy Code with what is essentially an alternative test proposed by Third Avenue. The disappointment of an individual creditor has never been an appropriate basis for disallowance of professional fees under section 330 of the Bankruptcy Code. 17. After admitting that it is beyond the ability of [Third Avenue] to comb through

hundreds and hundreds of pages of fee applications filed in this action, Third Avenue nevertheless blindly states that E&Ys fees and expenses (among those of other Professionals) should not be paid because the reorganization scenario favored by Third Avenue did not come to fruition. 18. In its Fee Objection, Third Avenue not only attempts to stretch the standards set

forth in section 330 of the Bankruptcy Code, but it also failed to perform even the most basic due diligence before filing the Fee Objection relating to E&Ys requested fees and expenses. 19. What is most notable about E&Ys services to date in these cases is what those

services did not include. E&Ys services have always been limited to the Rebate Investigation, and have never extended to the general administration of the Debtors bankruptcy cases. In fact, E&Y has never been involved in the course that these cases have taken, nor has it been kept informed as to the liklihood of success or failure in the Debtors reorganization efforts. Had Third Avenue made any effort to research the facts surrounding E&Ys retention before filing its

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Fee Objection, it would have realized that E&Y does not even fall within the group of Professionals about which Third Avenue complains.4 20. Furthermore, Third Avenue also fails in its Fee Objection to raise any question

with respect to the reasonableness and appropriateness of E&Ys fees and expenses to date, other than the aforementioned issues which do not apply at all to E&Y in its capacity as forensic accountant. 21. Given the critical nature of E&Ys services to the almost completed Rebate

Investigation, and the fact that the Third Avenue Fee Objection raises only issues that do not apply to E&Y in its unique role as forensic accountant, the Fee Objection should be denied and E&Y should be allowed payment of its requested fees and expenses to date and going forward (subject to Court approval). WHEREFORE, E&Y respectfully requests that this Court deny Third Avenues Fee Objection and grant such other relief as is just and proper. Dated: December 8, 2006 Respectfully Submitted, LATHAM & WATKINS LLP /s/ John W. Weiss John W. Weiss 885 Third Avenue, Suite 1000 New York, NY Telephone: (212) 906-1704 Facsimile: (212) 751-4864 E-mail: john.weiss@lw.com Counsel to Ernst & Young LLP
Perhaps most unfortunately, Third Avenues utter failure to investigate the bases of its Fee Objection has and will continue to cause substantial unnecessary expense to E&Y in addressing the issues improperly raised therein. Given that Third Avenue has now been informed of the facts set forth in this Response, E&Y requests that Third Avenue promptly withdraw its Fee Objection so as to avoid any further unnecessary expense. Should Third Avenue refuse to do so, E&Y reserves the right to seek an order of this Court requiring Third Avenue to reimburse E&Y for its legal expenses incurred in conjunction with this Response and any related hearing.
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